With the Baltic Index plunging 90 per cent in the last five months, stocks of Indian shipping companies are in free fall. Traders are unable to avail themselves of letter of credit as liquidity-hit banks shy away from them, hitting the shipping industry severely. The stock of Mercator Lines, India’s second biggest private shipping company with the largest fleet in dry bulk segment, has suffered the most amongst its peers in the five-month period. H K Mittal, Executive Chairman of Mercator, spoke to Abhineet Kumar on how his company is tackling the downturn.
Did you ever expect such a downfall in the freight rate for dry bulk carriers?
Investment banks were indulging in commodity future and freight future. That market was 10-20 times of the actual market, so lot of speculation was going on. We expected this bubble to burst one day. But it burst suddenly, which was beyond our expectation. Six to eight months back, the market was growing at six-and-a-half per cent. We probably expected the market to come down in 2010. But it came in 2008. Because of financial crisis now the letter of credits are not available to some of the traders. Demand for steel and all other commodity products are also coming down.
How is Mercator doing?
As far as Mercator is concerned, at least for the next three to four years, we are quite insulated. We have some long-term contracts with companies such as Tata Steel and ArcelorMittal. Our cash flow is protected for next three to four years. In dry cargo, almost 80 per cent is on long contracts.
Are there any instances of ships being kept idle due to such a trouble in the spot market?
Even for the spot, The ships were not kept idle even for a single day. Even in the downturn there is no possibility that our ship will be idle. If there is one, it will be of a foreign player.
What is your strategy during the downturn?
We are targeting more than 50 per cent of our income from operation such as dredging, offshore and coal mining in the next three to four years. But the way shipping prices are crashing, it would not take even three years to meet the target.
The stock of Mercator Lines has suffered the most amongst the leading shipping companies (it fell to Rs 30.10 a share on BSE on Friday, lower by 83.72 per cent from its all-time high of Rs 184.95 in January)?
We never work for the stock market. We work for the balance sheet and the shareholders. In our case, some foreign funds were holding a large chunk of our shares and when they broke they sold every thing in the market.
